Unlocking Nigeria’s Refinery Potential: Challenges and Opportunities
Nigeria, a major oil-producing nation, has long struggled with a heavy dependence on petroleum product imports. This reliance could have been significantly reduced if all licensed operators of modular refineries had successfully developed their facilities. Modular refineries are cost-effective alternatives to traditional, large-scale refineries, offering simpler distillation processes to convert crude oil into essential products like gasoline, diesel, and kerosene.
In 2018, the Department of Petroleum Resources granted licenses to 25 investors for modular refinery operations. However, progress has been slow, with only a handful of these refineries, including OPAC Refinery, Duport Edo Refinery, Walter Smith Refinery, and Niger Delta Refinery, reaching completion. What has impeded the growth of modular refineries in Nigeria?
One significant factor has been the prolonged existence of fuel subsidies. The Nigerian government’s subsidies on petroleum products, especially Premium Motor Spirit (PMS), led to regulated and capped product prices. This controlled pricing mechanism made it challenging for modular refinery license holders to secure funding within the two-year license timeframe. The removal of fuel subsidies in April 2023 marked a turning point, as investors began showing renewed interest in these projects.
The Nigeria Extractive Industries Transparency Initiative (NEITI) reported that between 2005 and 2021, Nigeria spent over N13 trillion ($74 billion) on fuel subsidies. This colossal expenditure not only strained the nation’s finances but also deterred private sector investments in the downstream petroleum sector.
With the full deregulation of the downstream oil sector and the removal of fuel subsidies, many investors are now revisiting their modular refinery projects. These smaller-scale facilities offer localized solutions across the Niger Delta region and can immediately provide high-quality refined petroleum products to local markets.
While the massive Dangote Refinery is expected to significantly contribute to Nigeria’s refining capacity, modular refineries can work alongside full-scale ones. The combination of both types of refineries will enable Nigeria to become a petroleum product exporter, reducing its dependence on imports.
Challenges remain for modular refineries, including limited access to intervention funds, the need for guaranteed feedstock, and the currency of feedstock payments. To promote their success, the government can provide loans at single-digit interest rates, ensure domestic feedstock obligations are fulfilled, waive fees for pioneer greenfield project developers, and implement the white paper from the former petroleum minister’s steering committee.
In conclusion, Nigeria’s modular refineries hold the potential to transform the nation’s energy landscape and reduce its reliance on petroleum product imports. With the right support and policies in place, these smaller facilities can play a vital role in ensuring energy security and economic growth.
